German Bank Buyout

The government of Saxony, which holds a majority state in SachsenLB, approved the sale to the Landesbank Baden-Württemberg (LBBW) at an emergency meeting of the regional cabinet on Sunday.

A spokesman for the Stuttgart-based bank told AFP that the sale price would be fixed at the end of the year after LBBW had carried out a more detailed evaluation of the Leipzig-based bank.

He said LBBW had also given the bank a 250 million euro ($342 million) cash injection as "an immediate measure."

Saxony state premier Georg Milbradt said current turbulence in the capital markets meant that it was impossible for the bank to continue without a partner.

Knock-on effect

News of SachsenLB's troubles emerged a week ago, when it admitted receiving a financial lifeline of 17.3 billion euros ($23.7 billion) from a consortium of other banks in the wake of the US home loans turmoil that sent world markets diving.

But German newspapers reported on Friday that this had failed to stem SachsenLB's liquidity problems caused by its inability to cover the debts of Ormond Quay, an investment fund under the management of its Dublin-based unit.

Normalize operations

Milbradt told MDR radio on Sunday that the sale of the bank to LBBW would put operations at the bank back on an even keel.

"We promise that the support of Baden-Württemberg will restore calm," he said. "Things could be back to normal on Monday. Baden-Württemberg is not leaping into a black hole with this purchase."

He said the lowest price his government was prepared to accept for SachsenLB was 300 million euros.

The Leipzig-based financial institution is the second German bank that has had to be bailed out after exposure to credit markets caught in the US sub-prime housing market crisis.

The IKB bank -- a relatively small financial institution that lends to medium-sized businesses -- was subject to a 3.5 billion-euro rescue operation last month by the state-owned KfW -- a bank set up immediately after World War II to finance Germany's reconstruction.